E-Proxy Amendments

E-Proxy Amendments

The SEC Approved Amendments Regarding the Notice of Internet Availability of Proxy Materials on February 22, 2010

As of January 1, 2009, the SEC requires companies to post proxy materials on an internet site and provide Notice of Internet Availability of Proxy Materials (the “Notice”) to shareholders. As you may know companies have two options for delivering proxy materials to shareholders:

1. Full set delivery option: companies may deliver the traditional full set of paper copies and the Notice along with the posting of the proxy on the internet; or

2. Notice-only option: companies may deliver the Notice to shareholders instructing them how to access the proxy materials on the Internet.

On February 22, 2010 the SEC approved amendments to the E-Proxy rules concerning its notice and access rules to provide flexibility regarding the format of the Notice that is delivered to shareholders. The amendments afford companies seeking to take advantage of the E-Proxy rules the opportunity to better educate their shareholders about the process of receiving and reviewing proxy materials and voting under the E-Proxy rules. The amendments shall go effective on March 29, 2010, and public companies with annual meetings scheduled for mid-May or later should consider taking advantage of these rule changes.

The E-Proxy rules describe the exact form and content of the Notice, which includes a legend of over 100 words in bold-face. Some concerns were raised that the Notice was a boilerplate and that companies were limited in their ability to effectively communicate with shareholders about the E-Proxy process. However, the amendments require that the E-Proxy rules provide companies with additional flexibility in formatting and selecting the language to be used in the Notice. The amended E-Proxy rules require a much shorter legend for the Notice, limiting it to the following:

"Important Notice Regarding the Internet Availability of Proxy Materials for the Shareholder Meeting to be Held on [insert meeting date]."

The SEC still requires that certain specific points be addressed in the Notice, but companies now have more flexibility in conveying the following information to shareholders in the Notice:

a. A specification that the Notice is not a form for voting and presents only an overview of the more complete proxy materials, which contain important information and are available on the Internet or by mail

b. An advisement that shareholders access and review the proxy materials before voting

c. The internet web site where the proxy materials are accessible

d. Instructions regarding the process for reluctant shareholders to request a paper or email copy of the proxy materials at no additional charge, including the date by which they should make the request as well as an indication that they will not otherwise receive a paper or email copy.

The new amendments to the E-Proxy rules also allow companies to include additional explanatory materials with the Notice.

Notice Timelines for Other Soliciting Persons

As of now, under the proxy rules, the ultimate deadline is the later of (i) 40 calendar days before the shareholder meeting or (ii) 10 calendar days after the issuer company first sends its Notice or proxy statement to shareholders. However, this had the practical effect of limiting the use of the E-Proxy rules (the notice-only option) because comments on preliminary proxy statements filed by such persons could take longer than 10 days to resolve. Hence, non-issuer soliciting persons must file a preliminary proxy statement within 10 calendar days after the issuer files its definitive proxy statement and must send its Notice to shareholders no later than the date on which the definitive proxy statement is filed with the SEC.

JSBarkats' Opinion

We believe that this new E-Proxy amendment provides companies more efficient and effective use of the notice-only option of proxy material delivery. Moreover, we suggest that any investors that wish to know about the proxy matters read the newly issued SEC publication, “Spotlight on Proxy Matters”. Furthermore, the changes to NYSE Rule 452 and the abolition for brokers to vote uninstructed shares in director elections should make companies consider the impact of the loss of discretionary broker votes in director elections.

If you have any other questions or concerns regarding the E-Proxy rules and any amendments thereto, please feel free to contact Sunny J. Barkats at sbarkats@jsbarkats.com.

Author: Sunny J Barkats, Partner Co-Author: Lawrence Metelitsa, Associate www.jsbarkats.com